Investors need to ask themselves if Old Mutual is a once-in-a-lifetime opportunity or a value trap. At 6.3, calculated on its 2024 earnings, it’s certainly cheap on the traditional p:e measure.
And the Big Green is falling further behind its peer group. Its share price has barely moved over 12 months — rising 1.2% to R11.72.
The contrast with its competitors couldn’t be more stark. Arch-rival Sanlam had a very strong past 12 months, with a 22% uplift. But even this was quite pedestrian compared with the two smaller life offices, Momentum Group and Discovery, both up 57%.
Whatever happened in the other divisions, Mutual shareholders could always count on strong growth from the mass & foundation cluster (previously “group schemes”). But this unit’s earnings rose a muted 2% in 2024 to R1.9bn, with net client cash flow falling 3% to R6bn.
It has grown its footprint, buying the Two Mountains funeral parlour chain, most of whose operations are in Limpopo. But this was substantially smaller than Sanlam’s recent Assupol acquisition.
Analysts and fund managers are still sceptical about the prospects for OM Bank, which might need an investment of as much as R5bn before it turns a profit.
Yet Old Mutual, while it had a pedestrian 2024, is not in intensive care. The outgoing CEO, Iain Williamson, points out that all the business units are profitable. The only units that went backwards were personal finance and wealth management (operating profit down 26% to R2.7bn) and rest-of-Africa (down 8% to R1bn).
Williamson says there was significant turnaround in personal finance, from R8.3bn in client outflows in 2023 to R5.9bn inflows in 2024. The group has caught up with its product set for wealthy clients with dedicated domestic and global private client products, which it hopes will be competitive with the banks and more-established competitors such as Sanlam Private Wealth.
There was renewed emphasis on the tied agency force, the CEO says, which is now more than 1,750 strong. It supports a further 2,100 brokers — now often referred to as independent financial advisers.
It’s hard to imagine South Africa without Old Mutual but even businesses with household names wither and die
In spite of lower interest rates and easing inflation many potential clients remain reluctant to commit to new recurring premium business, Williamson says. Nonetheless, existing business is stickier and death claims normalised after some exceptionally large single claims in the first half.
The star of the year was Old Mutual Insure (formerly Mutual & Federal) in which earnings more than doubled to R1.8bn.
Old Mutual could certainly release shareholder value by relisting this unit. Insure’s main competitor, Santam, has a p:e of 11.7, almost double Old Mutual’s. The underwriting margin rose from a negligible 0.3% to 6.2% and gross written premiums were up 9% to R21.9bn, a solid result in a flat economy.
Insure used to lag Santam in the specialist insurance classes, but it’s building up its presence in classes such as trade credit, heavy commercial vehicles, liability, corporate property and engineering. There is also potential blue sky from new age businesses such as Pineapple, in which Insure has a significant interest.
Another strong performer was Old Mutual Investments, which saw profit grow 37% to R1.7bn. This was in spite of the departure of its MD Khaya Gobodo, who has left to become CEO-designate of direct insurer Telesure after the death of its founder, Douw Steyn.
Williamson says though the group is happy with Investments’ indexation business and its fixed income unit Futuregrowth, it is looking at options for its active equity business, which could be restructured significantly.
Old Mutual is under pressure to make a decision about this business after Sanlam’s decision to sell its active equity and balanced franchise to Ninety One in November last year.
The jewel in the OM Investments crown is the alternatives business, which focuses on private markets. The nonannuity (nonrecurring) revenue from alternatives more than doubled to R911m through fair value gains in the unlisted equity portfolio and positive market movement on the credit portfolio.
There were still client outflows in the Investments cluster, though they were reduced from R12bn to R7.4bn. The improvement could have been more marked if it wasn’t for withdrawals for the two-pot pension system, which amounted to R2.7bn paid to 170,000 clients.
Group operating earnings were up 4% to R8.7bn. Adjusted headline earnings were up 14% to R6.7bn.
The most popular way to value a life office is to look at its embedded value (EV), which is NAV per share plus the actuarial valuation of the life book. EV has morphed over the years to group equity value (GEV), which aims to put a realistic valuation on the nonlife businesses as well.
Old Mutual’s GEV is R19.51 a share — meaning the group now trades at a 40% discount to GEV. It could be worth more dead than alive.
It’s hard to imagine South Africa without Old Mutual but even businesses with household names wither and die.
We have only to look across the Indian Ocean at its Australian counterpoint AMP, which has dwindled into insignificance and now occupies just a couple of floors of its head office building in Sydney.
* This article has been updated to reflect Khaya Gobodo’s title as CEO-designate of Telesure
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